Leading Up to the Crash Stock trading during the 1920s was extremely popular. Millions of people followed stock prices as many people saw it as their duty to buy stocks. In the 1920s, stock prices increased at about twice the rate of industrial production. By the end of the decade most of the stocks that had been bought were now purchased only for the resale value after their prices rose. In 1928 alone, the price of Radio Corporation of America went from 85 points to 420. Chrysler's stock more than doubled, from 63 points to 132. Only about 4 million Americans actually owned stocks, out of a population of 120 million. Corporations with extra capital found that lending money to stockbrokers was more profitable than putting it back into their own plants to develop new technology. The new approaches to buying stock contributed to an expansive atmosphere on Wall Street.
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The Crash The peak of the 1920s stock market was in September of 1929. From then on, it drifted downward. On October 23, the Dow Jones lost 21 points in just one hour. Then on Monday, October 23, the Dow Jones lost 38 points, which was 13 percent of its value. On October 29, also known as Black Tuesday, the worst hit. More than 16 million shares were traded as panic selling took place. But for many stocks there were no buyers. The market's credit quickly fell apart. By the middle of November, about $30 billion in the market price of stocks had been destroyed. By the end of 1929, hardly anyone predicted that the biggest depression of all time would take place.
The crash didn't necessarily cause the depression, but more the actions taken by America after it. |
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The Effects of the Crash One effect of the crash on the economy was the unequal distribution of wealth. In 1929, the top .1 percent of American families had a combined income equal to that of the bottom 42 percent. The top 5 percent of Americans received 30 percent of the nation's income. Almost 71 percent of American families had an annual income below $2500.
Many business owners decreased their number of workers. They laid off workers and decreased their production. The layoffs brought declines in consumer spending and another round of production cutbacks as more and more people had less and less money. Businesses became hesitant to expand. Many banks began to fail as depositors withdrew their funds, which were uninsured. Many families lost their savings because of these failures. Even more banks failed and were not able to give their depositors money from their accounts. People panicked and quickly withdrew their money from banks that were still in business. Many people hoarded their money in mattresses, walls, and tin cans buried in their yard. That means the money was out of circulation. Because of this even more banks closed. |
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